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research project with the title Bittersweet

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brightness the impact of CEO's bright 
personality traits on corporate fraud

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corporate fraud is an omnipresent topic that 
often implies devastating outcomes for all

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societal members due to its tremendous 
impact corporate fraud is a promising

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and exciting field of research let's look at two 
companies that have committed fraud in the past

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or and Abercrombie and Fitch comparing both 
companies by situational and organizational

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factors it becomes obvious that they were 
completely different whereas Pfizer operated

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and of course still operates in the industry 
of pharmaceuticals Abercrombie belongs to the

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apparel retail industry which is associated with 
a completely contrasting industry environment

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moreover in the year before fraud commitment 
both companies fundamentally differ in size

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Pfizer was about 22 times larger than 
Abercrombie in terms of total revenues

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referring to their financial situation 
abercrombie's return on assets was almost five

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times higher than pfizers comparing these cases 
of corporate fraud situational and organizational

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factors show no commonalities that point to a 
higher fraud propensity however the question

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arises are there commonalities on another 
level looking at the respective CEO who was

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responsible for these fraudulent actions we ask 
does the individual level matter more precisely

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do the CEOs of such firms have something in common 
what makes them more prone to fraudulent actions

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so why do we regard the company's 
CEOs as promising research Avenue

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upper echelon's theory states that CEOs are the 
most powerful persons within their companies

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thus they have a high impact on organizational 
decision making they Define a company's common

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vision and hence predetermined goals which 
are building the base for strategic decisions

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furthermore like other individuals CEOs 
differ in their perception of the environment

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these differences can arise from limited fields 
of vision which means that different CEOs with

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different levels of experience and knowledge 
attend differently to specific environmental

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stimuli more precisely they detect 
different topics to put their focus on

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hence strategic decisions are based on 
subjective interpretations of specific situations

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keeping these managerial differences between 
CEOs in mind one crucial question arises

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where do these differences stem from

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upper echelon's Theory argues that managers 
characteristics such as past experiences values

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and personality affect the firm's strategic 
position and performance we're a CEO experience

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captures all relevant background information of a 
CEO for example tenure or prior career experience

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CEO personality describes a relatively stable 
disposition of character traits certain

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personality traits of a CEO strongly influence 
her or his personal views of situations affect her

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or his decision making and consequently affect an 
entire organizational behavior and its performance

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considering literature on corporate fraud 
there are also three individual factors that

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strongly influence a CEO's Behavior first 
a large pay gap between a firm's CEO and

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the other members of the top management team 
can provoke a competitive culture and thus

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provide incentives for illegal means second a 
CEO's willingness to engage in corporate fraud

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is also driven by the compensation structure 
Scholars revealed a strong relationship between

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variable payments particularly equity-based 
compensation and the likelihood of a lawsuit

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third addressing personality in corporate 
fraud literature narcissism has been proven

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to foster a CEO's fraud propensity 
narcissists intend to optimize their

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personal benefits and do not feel confused 
by achieving this goal by acting unethically

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bringing together both streams of research it gets 
obvious that personality traits might be promising

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in order to explain fraudulent Behavior up to 
now a strong Focus has been on dark personality

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traits for example narcissism since dark 
personality traits were strongly associated

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with detrimental company outcomes for example 
fraud since Recent research has questioned the

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strict assignment of dark personality traits 
to detrimental outcomes and bright personality

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traits to desirable outcomes we intend to break 
with these predominant stereotypes therefore we

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connect bright personality traits with corporate 
fraud in order to obtain a holistic view in

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this relationship we examine a complete set of 
personality traits the Big Five personality traits

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based on an intensive literature screening we 
developed the following five hypotheses referring

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to the impact of Big Five personality traits on 
the CEO's willingness to engage in corporate fraud

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addressing the big five dimension open is to 
experience we postulate that high levels of

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creativity unconventionality and an attraction 
for risk-taking foster fraudulent activities

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hence the CEO's degree of openness to 
experience is positively related to the

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likelihood to commit corporate fraud the second 
dimension conscientiousness is associated with

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a strong goal in performance orientation which 
seems to outweigh lower risk-taking preferences

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based on these findings we propose the 
CEO's degree of conscientiousness to be

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positively related to the likelihood to commit 
corporate fraud a strong ego and impulsive

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reaction to Temporary failure and the feeling 
of invulnerability characterize extroverted CEOs

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these attributes might encourage extroverted CEOs 
to engage in corporate fraud which is the reason

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why we hypothesize a positive relationship 
between the CEO's degree of extraversion and

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corporate fraud for agreeableness 
there arises an ambitious picture

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on the one hand agreeable CEOs prefer lower risk 
taking which suggests a negative relationship

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between agreeableness and the engagement in 
corporate fraud on the other hand agreeable

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CEOs could perceive High shareholder and 
Broad pressure together with their avoidance

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of conflicts a positive relationship between 
agreeableness and corporate fraud becomes obvious

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following this logic we introduce competing 
hypothesis for the dimension agreeableness

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our last hypothesis refers to the last 
dimension of the big five namely neuroticism

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neurotic CEOs show high levels of 
self-doubt insecurity anxiety and hostility

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based on these attributes they show a strong 
tendency for social comparison resulting in

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the perception of negative outcomes or threats 
these perceived inabilities paired with the

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belief not to succeed by working hard could 
push a neurotic CEO into fraudulent engagement

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consequently we hypothesize a positive 
relationship between the CEO's degree

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of neuroticism and the corresponding 
likelihood to commit corporate fraud

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in order to test our hypothesis we base our 
investigation on a North American sample of

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186 CEOs of s p 500 firms our period 
of Investigation is from 2002 to 2017.

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but how did we collect data for 
the CEO's personality assessment

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as already mentioned we chose the personality 
concept of the Big Five in order to investigate

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personality traits holistically and 
break with predominant stereotypes

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Oscars and it all complains that CEO's decisions 
based on their behavioral mechanisms are

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investigated insufficiently due to methodological 
obstacles in assessing their personality traits

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since primary data is predominantly only 
available for small and private companies

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these findings could not be easily transferred to 
large public ones an alternative to primary data

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could be found in language samples of CEOs current 
approaches refer to spoken language in form of the

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CEO's answers given in conference calls conference 
calls consist of two parts a presentation as well

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as a questions and answers part in line with prior 
research we intended to gather the corresponding

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transcripts of quarterly earnings conference 
calls for the CEOs by using Thomson Reuters icon

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since the presentation part of those earnings 
conference calls is often accused of being

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scripted we based our investigation on the answers 
part of the Q a session in our last step we had

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to choose the methodological approach in this 
study we leveraged approaches from the field of

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machine learning to measure a CEO's personality 
in line with my Umbra at all we trained a neural

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network based on the stream of consciousness 
essay data set provided by panabaga and King

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we choose an open vocabulary and test the 
different engram sizes from 1 to 5 as features for

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the model we used compact model architecture with 
three hidden layers and five neurons in each layer

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the train model was then used to predict 
the individual personality dimension of a

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CEO for all big five dimensions in our study we 
conceptualized our dependent variable as the CEO's

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engagement in corporate fraud operationalized 
a set of Securities class actions lawsuits

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Securities class actions lawsuits 
are shareholder initiated lawsuits

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against firms and their top Executives in 
response to misleading or deceptive Behavior

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as top executives are directly responsible for 
disclosing information to shareholders this

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type of fraud is attributable 
to top executive defendants

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in line with previous studies corporate fraud 
is binary coded one if a CEO was engaged in

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any settled lawsuit in a given year and zero 
otherwise we collected cases of Securities

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class actions lawsuits at the Securities class 
action Clearinghouse of Stanford Law School

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the conviction of a CEO's illegal behavior is 
compared to all non-fraudulent CEOs a relatively

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rare case thus random sampling of fraudulent 
and non-fraudulent CEOs is not reasonable

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following prior research we used a more 
powerful matched pair sample design

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firms corresponding to the CEOs were matched based 
on three criteria fraud year industry and firm

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size we matched each firm accused of fraud with 
a control firm from the same industry based on

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the four-digit standard industry classification 
code firm size was represented by total assets

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we used a conditional logic regression 
analysis to test our hypothesis

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this method is typically used in matched pair 
sample designs with binary dependent variables

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as it considers the conditional nature of the 
likelihoods that a matched pair sample represents

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conditional logistic regressions do 
not produce an overall intercept and

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thus estimate a model with a fixed effect

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after the wrap up regarding our research 
model let's have a look into our results

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model 1 solely includes the control variables of 
our study in this setting performance relative to

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the social aspiration level has a negative effect 
on the incident of corporate fraud this is in line

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with Harrison bromley's results that illustrate 
that the likelihood of fraudulent behavior

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is highest for the lowest or most negative 
values of negative social relative performance

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model 2 includes our independent variables 
the big five dimensions of personality traits

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considering the output table it gets obvious that 
the higher the level of a CEO's conscientiousness

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the higher is her or his propensity to perpetrate 
fraud the corresponding results of our estimation

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show a positive and significant relationship 
referring to a CEO's degree of neuroticism

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also a positive relationship to the likelihood 
to commit corporate fraud could be detected

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the estimated coefficient for this independent 
variable is positive and statistically significant

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providing good support for our hypothesis 5. 
consequently CEOs who score high on neuroticism

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have a higher predicted probability to engage 
in behavior that results in unsettled lawsuit

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for the other three dimensions openness to 
experience extroversion and agreeableness

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we found no significant results which led to 
the rejection of the corresponding hypothesis

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so which contributions to our 
study offer to existing literature

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first we provide further insights into upper 
echelon's Theory by focusing on the CEO while

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investigating her or his impact on strategic 
decision making more precisely corporate fraud

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previous research on fraudulent Behavior often put 
the firm including its structures and culture in

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the focus of their investigations however in most 
of the cases the top Executives of a company are

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accused to perpetrate fraud with our study we 
follow the call of schnatterly at all to shed

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more light on the CEO by examining the impact 
of her or his personality on corporate fraud

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second we contribute to the ongoing discussion 
about the impact of bright and dark personality

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traits on organizational outcomes whereas previous 
Studies have shown positive as well as negative

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organizational consequences associated with dark 
personality traits Smith at all complains about

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prevailing literature to strongly assign bright 
personality traits solely to beneficial outcomes

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in order to question this relationship 
and break with traditional stereotypes

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we counter-intuitively connect bright 
personality traits measured by the big

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five Dimensions with detrimental company outcomes 
more precisely fraud by doing so we derive an

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in-depth understanding about the composition 
and mechanisms of the single elements of the

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Big Five personality traits and illustrate 
their impact on managerial decision making

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third linguistic analysis is widely used 
for personality assessment purposes since

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it represents a remarkable alternative to 
questionnaires and interviews to the best

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of our knowledge no other study related this 
measurement approach which facilitates broader

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personality samples to corporate fraud by 
pursuing an open vocabulary approach followed

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by feed forward neural networks as well as boosted 
regression trees we refer an Innovative and modern

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methodological approach for assessing personality 
to the field of fraudulent Behavior fourth our

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study contributes to fraud literature since 
we analyze a specific kind of fraud Securities

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class actions lawsuits that attracted not only 
practitioners but also scholars in recent years

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with our study we follow the emerging trend of 
applying these lawsuits in management literature

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since Securities class actions lawsuits 
are raised against a company and its top

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Executives they are perfectly suitable 
for research on top management teams

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besides theoretical contributions we also 
support companies and Regulators with new

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intriguing insights about the degree of certain 
personality traits and its impact on the tendency

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to behave fraudulently considering the example of 
the introduction both of the depicted fraudulent

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CEOs Henry mckinnell and Michael Jeffries show 
very similar levels for all big five dimensions

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the degree of agreeableness and 
neuroticism is even identical

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based on these insights companies are enabled to 
search for or choose more appropriate candidates

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for vacancy or positions organizations need 
to maintain The credibility in their corporate

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governance systems by improving internal controls 
and developing an ethical corporate culture

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the CEO of a company should represent this 
culture particularly with her or his personality

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simultaneously our results support 
controlling institutions like the

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Securities and Exchange Commission 
sec in the context of fraud prevention

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legal Regulators are highly interested in 
antecedents of corporate fraud to concentrate

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their investigations on cases that show 
high indications for illegal schemes

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with our study we hope to encourage Scholars as 
well as practitioners to investigate corporate

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fraud and especially its antecedents in order to 
reduce or in the best case to stop its occurrence

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if you have any questions or remarks we 
would be delighted to receive your message